LightPath Technologies Inc

NASDAQ:LPTH

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Operator]

Good day, and welcome to the LightPath Technologies Fiscal Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Albert Miranda, Chief Financial Officer. Please go ahead.

[Albert Miranda, executive]

Thank you. Good afternoon, everyone. Before we get started, I'd like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations, involve various risks and uncertainties as discussed in its periodic SEC filings.

Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there could be no assurances that the projected results would be realized.

In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles or GAAP. We refer to these as non-GAAP financial measures. Please refer to our SEC reports and certain of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers.

Sam will begin today's call with an overview of the business and recent developments for the company. I will then review financial results for the quarter and the full year. Following our prepared remarks, there will be a formal question-and-answer session.

I would now like to turn the conference over to Sam Rubin, LightPath's President and Chief Executive Officer.

[Sam Rubin, executive]

Thank you, Albert. Good afternoon to everyone, and welcome to LightPath Technologies Fiscal Fourth Quarter and Full Year 2024 Financial Results Conference Call. As always, our financial results press release was issued after the market closed today and posted to our corporate website.

Fiscal 2024 was an important year in our transformation from a pure component supplier to a system provider, delivering during the year new products, new contracts and starting to see growth driven by these new product lines.

Just over three years ago, we set on a new course with a new strategic direction, taking us from being a pure component supplier to a systems or solutions provider.

For those not familiar with this, I will provide a brief overview. Prior to this shift, LightPath has been for the greater part of 30 years, an optical component provider. What many years ago was a unique technology, molded optics, had become over the years, a crowded marketplace, going through the classic transformation and commoditization.

As such, LightPath's core business was eroding, unit prices decreasing and with them margins and profits. In 2021, we set a course on a new strategic direction, one that leverages some of our key technologies to deliver subsystems and system-level solutions instead of just components.

Aiding in this have been two important shifts happening in our industry. First, optics or photonics more generally as a whole is being used in more and more applications and industries. More times than not, those new customers starting to use the technology seek a partner that will provide a complete optical solution rather than components they would need to build in themselves.

So, essentially, the structure of the supply chain of our industry is changing, creating an opening or an opportunity for a company like LightPath to become a solutions provider. This transformation has been very successful. And in this fiscal year, we reported that 20% of our revenue came for those activities. This type of revenue hardly existed before we began going down this path.

The second change happening that enabled us has been around infrared imaging technologies, which have been evolving at a fast rate, finding their way into a growing number of uses and therefore, expanding the TAM, total addressable market.

Our core technologies, both that we owned already and developed internally through licensing and through acquisitions are all centered around infrared imaging technologies, allowing us to create significant differentiators in this fast-growing market space.

The outcome of that has been growth in our infrared components business to be now 44% of our overall revenue in the last fiscal year, overtaking the legacy business of PMO or precision molded optics. Both of those growth areas more than offset the drastic decline in that legacy precision molded optics business that we've seen.

Today, at the conclusion of our fiscal 2024 year, we can see the positive outcomes of this shift and more importantly, the exponential growth we're seeing coming down the road as a result of that.

Through our investment in differentiating technologies, we have positioned ourselves as a leader in the field of in [indiscernible]. With an exclusive license from the government to commercialize new materials developed at NRL as well as our partnership with Department of Defense, Defense Logistics Agency around replacing germanium in DoD applications, we not only are the go-to partner for everyone looking to phase out germanium, but have also earned ourselves a seat at the table in some of the most important discussions and projects in the defense world.

And by the way, our defense sales are at an all-time high right now. For example, in April, we announced a first design win of one of our new glass materials from Enavel. In this program of record, we are the sole source for a key part of a new infrared imaging system, which we expect could bring revenues in tens of millions of dollars a year in production.

Four years ago, we could only dream of being in such a position of not only being part of a key program, but also being the sole source for it. This program, by the way, is a program of record, which means it is a line item in congressional budget and funded for several years into the future. And this is just one of multiple programs we have now.

Exclusive materials are winning us those programs in all of which we're sole source due to our exclusivity. And naturally, since those are all defense programs, we're a bit limited in what we can share, but try to share as much as we can.

In addition to our investment in materials as differentiating technologies, we also invested in development of our camera technologies as well as the important acquisition of Visimid Technologies a year ago, which fed into this.

With those new technologies and further leveraging our unique materials and other differentiators, we have built over the last couple of years, a portfolio of unique thermal cameras that have created a strong entry point for us into a system-level product and enable us to now curve out a market share in a market estimated to be $9 billion of TAM and growing rapidly.

Our efforts in the camera business started with introducing Mantis, an innovative broadband or multispectral infrared camera that is a first of its kind and enabled purely by our unique materials for NOL.

Mantis served as a perfect innovative product to draw attention to us as a new camera manufacturer, positioning us as an innovative entrant and opened the door to important conversations with customers.

As a result of that, we not only became a camera supplier, but started working with customers on their unique needs, leading to more products that are driven by the customer request and needed in the market. This includes thermal cameras for harsh environments, high-sensitivity cameras for unique applications such as gas detection, and most recently, camera system for inspecting and optimizing performance of furnaces in power plants, steel mills, paper mills and more.

We're especially proud of this new product because of its price tag of $30,000 per unit, which represents better than anything else the transformation the company has gone through from selling lenses with ASPs of dollars or tens of dollars at best to now selling cameras in thousands or tens of thousands of dollars.

This is significant, of course, for future growth of the company as selling 100 cameras at $30,000 each has a completely different math to our top line growth than selling just lenses that go into those cameras, what used to be our prior business model.

Similar to the materials technology differentiators that has already landed us one program of record, our camera technologies differentiator has landed us the Lockheed Martin Missile program.

Under this program, LightPath's subsidiary, Visimid Technologies, which we acquired last year, is developing for Lockheed Martin, a new camera system that will be part of a missile system.

Due to pressing needs from the customer, the U.S. Army, the program is now on a very accelerated time line. Though it started only a year ago, we have already achieved a well vehicle qualification of our subsystem and can begin shipping units for flight tests, which we are going to do over the next few months.

The program is potentially transformative for LightPath. Not only is it exactly the type of business we were targeting in our new strategy, but the size of the opportunity can completely transform us.

Lockheed Martin wins against Raytheon, which they are competing against. We expect to be seeing revenues between $50 million to $100 million a year once in full production. Though we are still in development, the progress of this project is so fast that Lockheed and the customer are already looking to start setting up for LRIP, low-rate initial production next year, which is the last step before full production.

For a company our size, $35 million or so in revenue, a contract like this that could be $50 million to $100 million can completely transform us. And although there is a possibility that Lockheed will not win this against Raytheon, we know that this technology we developed is so transformative and important that the same customer is already integrating it into at least 2 additional programs.

This technology, by the way, was developed by Visimid prior to the acquisition and moved from R&D into program of record shortly after we acquired Visimid for about $3 million last summer.

Another exciting development on the camera front is our play on AI technology. AI technology is making an impact in many areas and many customers and users are looking for ways to leverage some of those advancements in the technology for their own use case or application. One important area AI technology has evolved is in vision, where neural networks can be trained to do many of the tasks that until now required a human operator.

For example, inspecting items on a production line, identifying an object of someone entering into a space such as an intruder or a drone, and so on. In fact, so much work has been done on applications for use of AI and vision that ideas and trained modules are abundant and growing rapidly.

In conversations with customers, we learned that the challenge is not so much what to do with an AI Module, but rather how to do it. Currently, anyone wanting to implement an AI Module in real life has 1 of these 2 options, using a virtual service such as AWS and other data or GPU centers or installing an NVIDIA or equivalent GPU system.

The first one using AWS or other online services requires streaming, which clogs the bandwidth and, in many times, facilities do not allow that due to cybersecurity constraint. Not to mention big delays in latency of their images.

The second option using an NVIDIA GPU or so requires use of a device such as the GPU that has a very high-power consumption and very high upfront costs, limiting its usefulness in most field applications.

To overcome that and to not only make it possible to implement AI in the camera but also affordable in cost and power, total cost of ownership, we have integrated a powerful AI accelerator chip made by Israeli Hailo into the camera.

This AI chip can accept neural networks in standard formats such as ONNX or TensorFlow or others and run those AI modules in the camera's video pipeline at a very low power consumption and almost no latency with high computational power of 26 tops tera operations per second.

This offering of a so-called AI-ready camera, if you would, has generated significant talk and interest in the industry. And we are now working with some very interesting projects and customers that have already advanced AI solutions and need a friendly hardware to implement it on.

Taking this approach of focusing only on the hardware and not developing an AI neural network ourselves is driven by 2 of our core values: focus and in this case, focusing on what we are good and letting our customers focus on what they are good at and value creation. In this case, the value creation is making AI implementation easier for our customers.

Okay. After talking about those 2 pillars of growth out of our known 3 pillars of growth, I'll give a quick update and overview about the third one, automotive. As those that follow us know, LightPath has been working with several Tier 1 and Tier 2s in the auto world to develop and qualify thermal imaging solutions for use in ADAS.

Though we were already on track to start delivering units to an OEM for a new car module, a new mandate set by National Highway Traffic Safety Administration, NHTSA, has impacted that implementation negatively in the short term, but created a much bigger long-term opportunity.

According to the new rule, by 2029, all new cars should include an emergency braking system that can identify pedestrians in pitch-dark conditions from a certain distance. To achieve that, it looks like thermal imaging is going to be adopted into all of those systems, which means a much, much larger addressable market than estimated at first, even though further out than we hoped at first.

From our conversations in the industry, we believe the auto industry is going to use this time to develop a solution that will allow thermal cameras to be installed behind the windshield of the car. This, in turn, will significantly simplify some of the challenges faced today in terms of environment and location of the camera in the car.

LightPath has solutions for both scenarios, camera sitting outside the car or behind the windshield, and we will continue to work on those with our customers. The automotive opportunity is still very significant for us, though the timeline is shifted further prior than compared to our prior conversations.

According to what we currently see, we will continue to ship lower volumes in the incoming couple of years and see volume shipments begin to ramp up in our fiscal 2027.

Okay. I will now turn this call to our CFO, Al Miranda, to talk about the numbers in fourth quarter and full-year results. Go ahead, Al.

[Albert Miranda, executive]

Thank you, Sam. I'd like to remind everyone that much of the information we're discussing during this call is also included in our press release issued earlier today and will be included in the 10-K for the period.

I encourage you to visit our website to access these documents. I will discuss some of the primary financial performance metrics and provide additional color on them to better assist investors in analyzing the company.

On a consolidated basis, revenues for the fiscal fourth quarter were $8.6 million compared to $9.7 million in the year-ago period. Sales of infrared components were $3 million or 35% of the company consolidated revenue.

Revenue from visible components was $32 million or 37% of consolidated revenue. Revenue from assemblies and modules were $1.4 million or 16%. Revenue from engineering services was $1 million or 12%.

Infrared component sales decreased approximately $1.7 million or 36%, primarily due to a decrease in sales against a large annual contract for germanium-based products, which was not renewed in the second quarter of fiscal year 2024. As we decided to reduce the amount of optics we produce from germanium, both to reduce our risk of supply chain disruption and more importantly, to work with customers to convert their systems to use optics made of our Black Diamond materials.

Visible component sales were approximately $3.2 million or flat in comparison to the same quarter of the prior fiscal year. By industry, there was a decrease in sales to defense customers due to timing of orders and an increase in sales for U.S. catalog and distribution channels.

Assemblies and modules revenue decreased approximately $0.2 million or 14%, primarily due to sales of a custom visible lens assembly to a medical customer for which we have an end-of-life order in backlog going into fiscal 2025.

In the fourth quarter of fiscal year 2023, this customer requested a greater number of units shipped, whereas in fiscal year 2024, we've shipped a lower but more consistent amount each quarter.

This decrease was partially offset by the addition of Visimid revenue. Engineering services increased approximately $0.9 million or 698%, primarily driven by Visimid's contract with Lockheed Martin, where revenue is generally recognized based on the achievement of milestones.

Gross margin in the fourth quarter of fiscal 2024 was approximately $2.5 million, a decrease of $0.6 million or 18% as compared to the same quarter of the prior fiscal year. Total cost of sales was approximately $6.1 million for the fourth quarter of fiscal 2024 compared to approximately $6.6 million for the same quarter of the prior fiscal year.

Gross margin as a percentage of revenue was 29% for the fourth quarter of fiscal 2024 compared to 32% for the same quarter of the prior fiscal year. The decrease in gross margin as a percentage of revenue is primarily due to the overall decrease in revenue, resulting in lower contribution to our fixed manufacturing costs.

Sequentially, gross margin improved from 21% in the third quarter of fiscal 2024 as we move past the inventory revaluation, which impacted that quarter. Selling, general, and administrative costs were approximately $3.6 million for the fourth quarter of fiscal 2024, an increase of approximately $0.6 million or 20% as compared to the same quarter of the prior fiscal year.

The increase on SG&A for the fourth quarter of fiscal 2024 is primarily due to an increase in wages, including nonrecurring executive severance costs and an increase in legal and consulting fees related to certain business development initiatives.

We also incurred additional legal and professional fees associated with the previously disclosed Delaware Chancery Court proceedings. Net loss for the fourth quarter of fiscal 2024 was approximately $2.4 million or $0.06 basic and diluted loss per share compared to $0.8 million or $0.02 basic and diluted loss per share for the same quarter of the prior fiscal year.

The increase in net loss of approximately $1.5 million for the fourth quarter of fiscal 2024 as compared to the same quarter of the prior fiscal year was primarily attributable to the decrease in gross margin, coupled with increased operating expenses, including amortization of intangibles.

EBITDA for the quarter ended June 30, 2024, was a loss of approximately $1.3 million compared to income of $0.1 million for the same period of the prior fiscal year. The decrease in EBITDA in the fourth quarter of fiscal year 2024 was primarily attributable to a decrease in revenue and gross margin, coupled with increases in SG&A and other expenses, which were primarily related to nonrecurring items.

Turning to results for the year ended June 30, 2024. Revenue for fiscal 2024 was $31.7 million, a decrease from $32.9 million in the prior fiscal year. Sales of infrared components were $14.1 million or 44% of the company's consolidated revenue in the year ended June 30.

Revenue from visible components was $11.2 million or 35% of the consolidated revenue. Revenue from assemblies and solutions were $4.5 million or 14% of total company revenue. Revenue from engineering services was $2 million or 6% of total company revenue.

In fiscal 2024, infrared sales decreased $0.3 million or 2%. The decrease in revenue is related to the previously mentioned germanium-based annual contract that was not renewed.

During the fiscal year, this decrease was mostly offset by an increase in shipments against an annual contract for an international military program. This contract was renewed during the first quarter of fiscal 2024 for a higher dollar value than the previous contract.

Visible component revenue decreased approximately $2.2 million or 16%. The decrease in revenue is primarily due to a decrease in sales to customers in the defense industry as well as a decrease in sales through catalog and distribution channels in the U.S. and Europe.

Sales to customers in the telecommunication industry in China also decreased. Assembly Solutions revenue decreased approximately $0.2 million or 5%, primarily due to a decrease in shipments against the multiyear contract with a defense customer due to timing as well as decreases in sales of infrared assemblies to industrial customers in both China and the U.S., both of which customers have been steadily decreasing orders since the peak of COVID-19.

These decreases were partially offset by the addition of Visimid revenue from sales of infrared camera cores. Engineering services increased approximately $1.5 million or 363%. This increase was primarily driven by Visimid's contract with Lockheed Martin. The remaining increase is driven by revenue from one of our space-related funded research contracts.

SG&A costs were approximately $12.3 million for the fiscal 2024, an increase of approximately $0.9 million or 8% as compared to the prior fiscal year. The increase in SG&A for fiscal 2024 is primarily due to an increase in wages, including nonrecurring executive severance costs and an increase in business development initiatives. These increases are partially offset by a decrease in stock-based compensation.

We also incurred additional legal and professional fees in fiscal 2024 associated with our rescheduled Annual Stockholder Meeting and previously disclosed Delaware Chancery court proceedings. We expect SG&A costs to remain elevated for the next few quarters as we continue with certain business development initiatives.

Net loss for fiscal 2024 was approximately $8 million or $0.21 basic and diluted loss per share compared to approximately $4 million or $0.13 basic and diluted loss per share for fiscal 2023.

The increase in net loss for fiscal 2024 as compared to fiscal 2023 is attributed to approximately $4.3 million increase in operating loss resulting from lower revenue and gross margin and increased operating expenses.

Operating expenses increases included the nonrecurring SG&A items previously mentioned as well as increased new product development costs and $0.5 million increase in the amortization of intangibles resulting from the Visimid acquisition.

This operating loss increase was partially offset by a decrease in other expense, approximately $0.1 million, primarily due to the decrease in the interest expense. In addition, there was a favorable difference of approximately $0.2 million in the provision for income taxes for fiscal 2024.

EBITDA for fiscal 2024 was a loss of approximately $3.7 million compared to $0.4 million for fiscal 2023. The decrease in EBITDA for fiscal 2024 is primarily attributable to lower revenue gross margin, coupled with increased operating expenses, including SG&A and new product development.

As we mentioned, SG&A for fiscal 2024 includes a number of nonrecurring items, particularly as related to business development initiatives.

As of June 30, 2024, we had working capital of approximately $7.5 million and total cash and cash equivalents of approximately $3.5 million, of which less than 50% of our cash and cash equivalents are held by our foreign subsidiaries.

Cash provided by operations was approximately $0.5 million for fiscal 2024 compared to cash used in operations of approximately $2.8 million for the prior fiscal year. The increase in cash flow from operations during fiscal year 2024 is primarily due to decreases in accounts receivable and inventory due to lower revenue in fiscal year 2024 as compared to fiscal year 2023.

Capital expenditures were approximately $2.2 million for fiscal 2024 compared to approximately $3.1 million in the prior fiscal year.

The company also expended approximately $0.9 million net of cash acquired to acquire Visimid during fiscal 2024. During fiscal years 2024 and 2023, our capital expenditures were primarily related to the expansion of the Orlando facility.

In August 2023, we completed the construction of certain tenant improvements subject to our continuing lease for Orlando facility, of which the landlord provided $2.5 million in tenant improvement allowances.

We funded the balance of the tenant improvement cost of approximately $3.7 million over fiscal years '23 and '24. In August, the company entered into a $3 million 1-year note. The purpose of the note is for business development initiatives and CapEx in excess of plan should we need it. I'll add more content on CapEx and cash in fiscal year 2025 in a minute.

Our total backlog at June 30, 2024, was approximately $19.3 million, a decrease of 11% as compared to $21.7 million as of June 30, 2023. The decrease in backlog during fiscal 2024 is primarily due to shipments against the prior period backlog under several annual and multiyear contract renewals, the timing of which are not always consistent.

In previous years, we have typically received a significant contract renewal from our largest customer for infrared products made of germanium during the second fiscal quarter. However, as previously disclosed, we decided to reduce the amount of optics we produce from germanium, both to reduce our risk of supply chain disruption and more importantly, to work with the customer to convert their systems to use optics made of our own Black Diamond materials.

We continue to work with this customer as well as other customers to convert their system to use Black Diamond optics.

The reduction in backlog as a result of these shipments during fiscal 2024 were partially offset by a significant contract renewal for advanced infrared optics for a critical international military program and a significant contract awarded to Visimid by Lockheed Martin in December of 2023.

I'd like to take one moment and put fiscal 2024 results in context. In fiscal 2024, we finally completed the alignment of the production facilities around the world.

In China, we finished the consolidation of the business into 1 legal entity and merged 2 locations into an existing footprint, reducing our presence there in China. In Latvia, we continued expansion of capabilities, in particular, coating and set the organization up for authorized work for NATO and the EU authorized defense work.

The U.S. was far more ambitious in scale. Over the last 15 months, we consolidated the operations of the two legal entities, consolidated two buildings, increased the clean room by a factor of two and also modernized it, prepping it for significant growth with minimum future investments required.

In addition, we restructured the organization to remove layers, removed complexity and reporting structures and redeployed employees towards our growth areas. The restructuring of LightPath globally is a good accomplishment by itself.

In 2024, we also acquired Visimid, integrated it and were awarded the Lockheed Martin contract and have already reached flight milestone, the significant event is now and for the future. All of these activities were executed very well. They do come with a cost, and you can see that in the net income and cash flow.

They do come with the benefit. Our estimates are that we've removed roughly $1.2 million in structural costs that will be permanent going forward. I'm not pointing out all of this to give us some unrecognized credit for work, but rather explain how this sets the stage for fiscal year 2025. The effort to fix problems of the past, build a world-class organization are largely done.

Going forward, we will not invest in CapEx anywhere near the levels of the past two years. Now, our efforts will turn to growth. Sam mentioned all the potential opportunities in front of us. To capitalize on these opportunities, all of the resources of the company, people and cash will be geared towards business development initiatives, which includes sales, marketing, product development, and high-tech IR assemblies amongst other things.

The stage has been set. In 2025, we have the potential and we have the ability to execute. It should be a very exciting year. I sincerely thank all of you for their support.

With this review of our financial highlights, recent developments and my editorial comments concluded, I'll now turn the call over to your operator to begin the question-and-answer session.

[Operator]

[Operator Instructions] The first question comes from Brian Kinstlinger with Alliance Global Partners.

[Brian Kinstlinger, analyst]

A lot of information to unpack. Based on your backlog and your pipeline and a lot of things you've discussed, how should we think about fiscal 2025 in terms of revenue just from a high level? Do you expect a year of double-digit growth given this year or this past year was depressed? How do you think about seasonality? And as your largest customer, I was unclear, have they begun to order Black Diamond Optics?

[Sam Rubin, executive]

Hi, Brian, the first answer is that we would take the low end of double-digit growth as our expectation for growth for the next fiscal year.

[Brian Kinstlinger, analyst]

And seasonality in your largest customer?

[Sam Rubin, executive]

The largest customer has not started yet taking volume delivery of Black Diamond. It's still in the evaluation stage on their side. We've delivered everything needed for that but we expect them to be able to ramp up quickly once the decision is made.

[Brian Kinstlinger, analyst]

Given time line projects without them?

[Sam Rubin, executive]

Yes. Yes. I mean, part of the reason for the decision was that with the defense license in Europe, we feel and know that we can use that same capacity for more lucrative defense business in some cases.

And so, moving away from germanium is not only because of germanium per se, but it's because when we're talking about a commercial customer like this Gun Sight company, even when it's not germanium, we can still be comparing us to suppliers from the Asia, let's say, where in the defense business in Europe, once we have that license, we're competing against other European companies.

And our cost basis in Latvia is of very low compared to most European companies. So, we want to leverage as much of that capacity as we can for defense business in Europe. I expect that even when this customer comes back, it would not be at the levels of what it was when the germanium was at full force simply because we're starting to land in already new customers from the same capacity that are honestly more lucrative and better for us.

[Albert Miranda, executive]

And, Brian, we can use the Appian facility for ITAR defense work in the U.S. as well. And considering their cost position, there's not too many companies in the U.S. that can go lower.

[Brian Kinstlinger, analyst]

And then you mentioned Raytheon is Lockheed's competitor for the new missile system. Assuming like most procurements, there was a down select process and it started with more competitors, have you received feedback yet as far as Lockheed standing? And then when do you expect reasonably there might be an award, especially as we enter constant continuing resolutions, which are going to start right away?

[Sam Rubin, executive]

Yes. So, first of all, the down select has already happened. The first round included more vendors. The Army then chose to take a very unique approach, something that almost never gets done, and that is to fully fund Lockheed and Raytheon all the way to the end.

So, they are both fully funded to deliver missiles ready for prime time. And that is simply because they really want to accelerate this. They're running out of missiles they haven't run out of them yet and geopolitics, unfortunately, is not improving around the world. And so, this is all done on an accelerated course at which by the end of it, both companies are going to have a ready product in the same time.

We know that the Lockheed Martin solution is preferred on paper since it provides significant advantages, which we cannot talk about. But Raytheon is the incumbent. Raytheon designed and made their first-generation Single missile all these years and is the incumbent in this player. So, obviously, have some built-in advantages even though the technology of Lockheed, we believe, is far superior in this case.

The earliest we expect is a year from now, September or November 2025 as a possibility of a decision as it stands right now.

[Brian Kinstlinger, analyst]

And then you mentioned last quarter and this quarter again, a second opportunity for an airborne system. It sounds like it's a program of record, and I thought you have the design win, which I'm assuming means this is your program. If I have that, and you mentioned tens of millions of dollars of potential annual revenue. First of all, why is it potential if you've already won? Is it just an estimate it's difficult to understand? And when will production begin for this?

[Sam Rubin, executive]

Well, potential is something my lawyer taught me to say in every sentence. So, he will beat me to death if I say anything definitive. But we are the sole source for the prime that is building that system. That system is going to go on the Apache helicopters, by the way.

We are already awarded building the prototypes for it, and we expect to deliver the first 3 prototypes by the end of this calendar year, more or less, so, maybe beginning of next calendar year.

At which point, if it goes well, we will immediately be awarded the LRIPs, the low-rate initial production. Right now, the award we have similar to the Lockheed is the award for the development effort. We don't have yet a contract. If we would, we obviously would have.

[Brian Kinstlinger, analyst]

Does anyone else have a development award for prototypes or just your team?

[Sam Rubin, executive]

Just us.

[Albert Miranda, executive]

It's using Black Diamond material.

[Sam Rubin, executive]

Yes, it uses the NOL materials. So, by default, we are the sole source.

[Albert Miranda, executive]

You can't get them anywhere else, Brian. That's it.

[Brian Kinstlinger, analyst]

My last question is, you announced the launch of your new Mantage camera for greenhouse gas emissions. First of all, does that mean readily available for sale to all customers or is it also still in prototyping or proof of concept? And then I know you put out the TAM, but can you quantify the pipeline, say, in the next 18 months? And how do you think about the sales cycle?

[Sam Rubin, executive]

Yes. So, first of all, I thought we said it in the press release, if not, we should have emphasized, we have already shipped. So, we have orders and started shipping to that.

The TAM or what our addressable market or serviceable market would be, I would say the price we're looking at is up to $30,000 per unit. And I think there's a reasonable amount of it being in 3-digit units, so, being 100, 200 units a year, I'm not sure how fast we'll get there. I doubt it would be immediate. I wish it would be, but I doubt it would be but that sort of gives the range of where we think currently. And that's just based on existing market and technology.

What we think and hope might happen is that we are enabling customers to do more with those cameras compared to other solutions in the market in terms of optimization of the burners inside their furnaces, inside the power plants. And, therefore, the market size will grow. But right now, I'd go with those numbers.

[Albert Miranda, executive]

Yes. And, Brian, the other thing is this is sort of like a standard product almost. It is application-specific, but it is sort of a standard product, which means we're actually building to forecast.

So, we're not going to see that backlog anymore. And so, that's one of the things that we relied on backlog before to sort of be very definitive in terms of what the future looks like. That's not really going to be the case for the gas detection cameras and then for related cameras that sit in that same camera family.

[Operator]

The next question comes with Jaeson Schmidt with Lake Street.

[Jaeson Schmidt, analyst]

I just want to follow up on that last question on this next-gen Mantis. I know it's more targeted for this specific end market. But just curious if some of the features on this new camera were things that your customers in that market were specifically asking for. I know kind of the previous Mantis version could have theoretically addressed this market. But just trying to get a sense if there was kind of customer demand for kind of the features in this new one.

[Sam Rubin, executive]

Now, you're absolutely right. And I think you hit at a really important spot. This version of Mantis came out of very detailed conversations with the customers. Some of them because we just had the conversation with customers, some of them because of the team we have now.

Jaeson Messerschmidt that joined us from FLIR, along with a couple of other new recruits in the sales, business development, product management side come with an extensive experience in the oil and gas industry. I mean, they know things they didn't even understand before that are possible.

So, with their help, with these new team members that joined us all in the last few months, we've been able to fine-tune what we felt like is a great technology, Mantis that from a pure technical point of view, could do an enormous amount of things.

They were able to take it and fine-tune it into saying, okay, it's great we can do AB,C, thing. Let's just focus it down on doing CO2, looking at the CO2 emissions in a furnace, switching between looking at the flames to looking at the heat distribution, things like that.

In theory, it's the same. Realistically, this is the application side now driving it, which honestly is the way it should be.

[Jaeson Schmidt, analyst]

And then just looking at OpEx, I know, Al, you mentioned taking $1.2 million of costs out in 2024. Just curious how we should think about sort of the new level of SG&A going forward?

[Albert Miranda, executive]

Yes. So, the efforts we did in 2024 to reduce our overall structural cost doesn't really fully kick in. It does now in Q1. But we sort of changed things in Q3 with the restructuring. And then in Q4, we did more activities around restructuring and reorganizing so that in Q1, we get the sort of full year benefit.

That being said, we are plowing money back into business development initiatives. So, we're probably going to take that $1.2 million and structural cost reduction and spend it elsewhere, not for the entire year, but for some of the year.

Some of the things -- I mean, your last question kind of dovetails into it's nice to have a nice camera, but you have to sell them. So, we're going to spend a tremendous amount of effort on that side.

[Jaeson Schmidt, analyst]

And then just the last one for me, and I'll jump back in the queue. Looking at the auto opportunity, I know you mentioned sort of thermal imaging behind the windshield. But just at a high level, has the timetable that you guys are thinking about this opportunity changed? Or is it still kind of a couple of years in the future?

[Sam Rubin, executive]

Yes. I think because there's definitely a desire or a goal of the industry to be behind the windshield, deliveries in the next year or 2 are going to be small in scale. So, we were hoping, I think we were expecting to be delivering already 20,000 units a year now and start scaling up to the hundreds of thousands for that key customer. It's not going to be in those numbers.

We're going to be in the thousands of units. And that is simply because no one wants to go and implement it in the car in high volume in a configuration that's going to be very different than the configuration that the auto industry is going to adopt in 2028 or so.

And so, the next 2 years, we're going to see some volumes that's going to be for new companies, new Tier 1s, OEMs starting to get familiar with thermal imaging, so, to test it in low volumes. But the real volume will start once the windshield solution is developed, and that requires extensive work on the next 2 years by the auto industry on the windshield side, not on the thermal imaging side.

[Operator]

The next question comes with Scott Buck from H.C. Wainwright.

[Scott Buck, analyst]

First, I want to follow up on one of Brian's questions, Sam. If a decision is made on the Lockheed Missile program 12 months out or so, how quickly then does that move to production after that agreement or that decision is made? I mean, is that 3 months? Is that 6 months? What is that process?

[Sam Rubin, executive]

Yes. That's still a bit up in the air. The conversations we're having are still indicating that we will be next calendar year setting up the infrastructure for production in Orlando. So, that means that our part at least, I don't know about the rest of the parts that go into the Lockheed Missile that's their business, but our part, we could, in theory, start shipping within about 3 months after the decision is made.

[Scott Buck, analyst]

And then, Al, given the shift in revenue with more coming from assemblies and engineering services, can you remind us how the gross margin dynamics work and how we should be thinking about things over the next 12 to 24 months as that ratio continues to move higher?

[Albert Miranda, executive]

The margins on assemblies and modules are higher, higher than LightPath has had in the last 2 or 3 years that I've been here. So, we should be for those products north of 40%.

[Scott Buck, analyst]

And then last thing, I just want to ask about cash balance. You mentioned you took out the, what, $3 million loan in August kind of as insurance. But generally, what do you need to run the business cash-wise?

[Albert Miranda, executive]

Well, we're projecting being operating cash flow positive. So, what we need is whatever we decide to spend in CapEx above that and any other business development initiatives that we feel require cash investments.

Not huge amounts. I tried to sort of say that it's not big numbers anymore like in the prior 2 years.

[Sam Rubin, executive]

He doesn't allow me to spend anything is what he's saying.

[Operator]

The next question comes with Glenn Mattson with Ladenburg.

[Glenn Mattson, analyst]

Just 2 quick ones for me. Most of things have been answered already. But just you mentioned that you could be setting up for LRIP next year with Lockheed. Can you say is there an expense related to that? Or are you prepared for that? Or is there anything you need to do to get ready for that?

[Sam Rubin, executive]

With money that went into the Orlando facility was for that, so, physically, the infrastructure layout is there. Specific equipment that would be needed, capital equipment, we still expect it to be paid by the customer.

[Glenn Mattson, analyst]

And then last for me, just curious about the AI envision camera technology. I guess in the UAV space, you see a lot of people who are looking to do, especially the defense side, the ability to navigate through vision systems and things because they don't want to rely on networks that can be jammed and that kind of things. There's a lot of growth in that space. I'm just curious, is that an area that it could be?

[Sam Rubin, executive]

There is definitely. That's a very interesting area thing. There's definitely some companies we're in touch with at least 2 that do that, and we know that. But most of the applications we're seeing so far are much more basic first as in target acquisition, pointing the drone in the right direction, tracking a target as it's moving and so on.

[Operator]

The next question comes from Orin Hirschman with AIGH Investment Partners.

[Orin Hirschman, analyst]

It's Orin Hirschman from AIGH. In terms of a missile, I know you delivered the actual commercial, the commercial version or a pre-commercial version to actually fire missiles and they've got actually test real live firing of missiles. Do you have any idea if that's commenced already? Is that something they're going to give you feedback? I assume they're going to give you feedback at least on your portion, if it's involved in anything that they need to give you feedback.

[Sam Rubin, executive]

Hi, Orin, good to hear from you. I'll answer that as much as I can since Lockheed is in competition with Raytheon. So, I need to assume that whatever I say can be heard by anyone really. We achieved a worthy certification, meaning that the units can go on missiles.

In the next few months, we're going to start shipping units that will physically go on missiles. Once they do and they start flying, definitely, we're going to be receiving a lot of feedback. I mean it's a very, very intimate workflow between our group and Lockheed down to almost as if they're working in one company altogether. I mean it's just a lot of back and forth there. So, there'll be a lot of tweaking and work done once we start firing and seeing flight data.

[Orin Hirschman, analyst]

How is it logically possible though? I assume it's going to go through a lot of flight testing and debugging, et cetera. How would it be possible that they could really get into production where you have to be ready for production in '25?

[Sam Rubin, executive]

Let me say it this way. These are people that have been doing this for many, many years and have a lot of trick and trips up their sleeve that they can do and an enormous amount of existing data that they base this on in simulation.

So, you'd be amazed, but it's not as if they're going to be firing physically thousands of missiles to collect the data and optimize this. There's some very, very sophisticated systems that these companies have built over the years that are used for this.

[Orin Hirschman, analyst]

Is there a significant number of deliverables that you have to do in the coming few months?

[Sam Rubin, executive]

Every week, pretty much. We can't share a lot of them, but the program is very intense in its thing. I mean, in general, we're in the next few months are looking at shipping over 100 flight units to that extent. But there's many, many deliverables along the way of many different aspects of this.

[Orin Hirschman, analyst]

I mean, I know you alluded to an ASP, but that's a lot of millions of dollars if I'm not incorrect on that.

[Sam Rubin, executive]

Yes. I mean you can even just go and look at the federal budget and can see that. But if you look at single Gen 1 and that they built over 105,000 of them, I think, and the unit price of those missiles is 6 digits.

[Orin Hirschman, analyst]

I'm saying just for your portion of the build, you alluded to 100 units, a lot of money, millions of dollars for LightPath, if I'm not incorrect.

[Sam Rubin, executive]

Well, that's part of that NOV, that $7.5 million that we talked about. And that's, yes, definitely, we're doing quite a bit of business with Lockheed now.

[Orin Hirschman, analyst]

Last question for me, just in terms of, you alluded to using AI. Is that for an infrared camera or just the regular camera?

[Sam Rubin, executive]

So, that's an interesting point. We started focusing only on infrared cameras. Again, I strongly believe in focus, right? So, we can't spread too thin. We're not a large company. We can't do too many things. But what we've seen is at the moment we started talking about that, we're having a lot of conversations and people are asking also for visible.

So, the company we're working with in Israel, Mantis technology, which is a great partner to have, and we're doing incredible things together, has actually developed a version that allows us to feed 2 cameras in. So, in theory, we can make any of our systems into a dual camera that would be both visible and infrared.

Again, I'm very, very cautious. We can't spread our R&D money and development too thin. So, once we start generating real revenue from there, we can look at next steps and adding more versions or more capabilities.

[Orin Hirschman, analyst]

Part of this question I wanted to ask today, it can even be in a public forum like this call is the security camera business for high-end security cameras with a lot of intelligence built in AI intelligence is just booming in the last 2, 3 quarters as evidenced by Motorola's business is just booming. And everybody wants more and more intelligence at the edge for the reasons that you outlined on the call. I have not heard, and here's where I need your insights and what's really going on in the development of the whole industry, does anybody have an infrared camera?

[Sam Rubin, executive]

Yes. So, actually, you're touching on exactly what most of our activities right now with our AI or HIR cameras are around that intruder detection, detection of perimeter security and so on.

There are a couple of players there. But again, there's just so many companies that are wrongfully relying right now on streaming and on using online computational services. And we're hearing that once they go out to the field, they're in for a nasty surprise because no one in a significant infrastructure facility will let you connect the system to the Internet and connect to stream. So, this is exactly where we're playing, yes.

[Orin Hirschman, analyst]

That is a very specialized market that's dominated by Motorola and a few other players. And I guess my question is, don't you need to get into a major player where you can demo?

Basically, you're doing like you always say, your expertise in terms of the infrared capability and fully packaged assembly and the AI as well, although they have a few players have their own AI is what maybe think of it, don't you really want to be OEM into Motorola, isn't that the goal?

[Sam Rubin, executive]

That's exactly where we want to be. So, we're working on 2 fronts. One front is working with OEMs like Motorola and such for them to buy the camera for us and integrate it. And another front is what we call a software ecosystem where we're developing a portfolio of, say, partner companies that have focused only on the software.

And we know that they have currently huge challenges going out and actually selling the product in the field. And we're working with them to make the software, the AI that they developed compatible into our camera so that it can make it much easier for customers to use their software. So, 2 fronts in parallel.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

[Sam Rubin, executive]

Thank you, everyone, for taking the time to follow us on LightPath. I'd like again to thank our employees and all stakeholders.

The last 4 years have been quite a bit going on. We have many, many different things we had to do, but we're there now. We have some incredible opportunities that we won and continue to win, thanks to the hard work of the team. We have the future ahead of us, and we're pretty much done with most of the cleanup.

So, we can really focus now on the future and on growth. I look forward to hearing everyone in future calls. And, as always, I'm available directly on the website or in any other way for anyone that needs any questions. Thank you, and good night.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.